Glum Q4 forecast overshadows Alcatel-Lucent's profit spike

Alcatel-Lucent's rosy third-quarter profits were overshadowed this morning by a grim fourth-quarter forecast that warned sales could take a hit from the European financial crisis.

For the remainder of this year, the company expects "weaker revenues there than initially planned in the fourth quarter," CEO Ben Verwaayen said, citing "market uncertainties" and "selective spending from our customers, especially in Europe."

"We are not at a level we are satisfied with," Verwaayen said. The company has struggled to post a profit since it was formed by the merger of Alcatel and Lucent in 2006.

The uncertain economic environment prompted Alcatel-Lucent to cut its fourth-quarter forecast. It is now aiming for an adjusted operating margin of about 4 percent, down from its original target of 5 percent.

The infrastructure vendor said sales dipped nearly 7 percent in the third quarter to Euro 3.8 billion, or $5.25 billion. Profits spiked to $268 million, from $34.5 million last year, but the increase was mainly driven by a favorable tax gain of $210 million.

The decline in sales was attributed to weakening demand in Europe and the Asia Pacific region, which was offset by a slight increase in other international markets. The company's networks division saw a 7 percent drop in sales on a drop-off in its wireline and optics units.

Verwaayen said Alcatel-Lucent plans to cut costs, particularly in Europe. The reductions will reduce fixed costs by $276 million next year and $415 million in 2013.